Primary Problem For GameSoft Corp. Is Software Tied To The Older Platforms: B. Riley & Company's Analyst

GameStop Corp. GME shares tanked drastically on opening on Friday following the worse than expected third-quarter results declared by the company. The video game retailer posted third-quarter EPS of $0.57, below analysts’ expectations of $0.61.

Even after such dismal performance, some analysts on the Street are optimistic about the company’s prospects in the future, Scott Tilghman of B. Riley & Company is one of them. He was recently on CNBC discussing the outlook for gaming sector overall and GameStop in particular.

“The bear case for GameStop has been that all of the software is going to move from a physical copy to a digital copy. Similar to what we have seen in the music industry and the video industry. Frankly, that’s not happening, the digital marketplace is still small, what does exist GameStop is dominating [in it]. They have much higher growth than the publishers are saying; they were up over 50% in the quarter,” Tilghman said.

Tilghman highlighted that the primary problem for the GameSoft is “software tied to the older platforms, the XBOX 360, the PlayStation 3 has fallen rapidly, down 58% year to date and that’s what really impacting the top-line. We don’t have a smooth of a transition as we have seen in prior video games cycle.”

Tilghman feels that the transition to digital hasn’t happened as quickly for video games as it has happened for other digital media because of the value proposition. According to him, a gamer sees residual value in a physical copy of a game, such that it can be traded or lent, that he doesn’t finds in the digital copy.

At the time of writing, shares of GameStop were trading at $37.80 levels, down more than 13% for the day.